Mexico Chemicals 2014
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<strong>Mexico</strong> <strong>Chemicals</strong> <strong>2014</strong><br />
PRE-RELEASE<br />
EDITION
MEXICO CHEMICALS PRE-RELEASE<br />
2 Global Business Reports // MEXICO CHEMICALS PRE-RELEASE<br />
November <strong>2014</strong>
MEXICO CHEMICALS PRE-RELEASE<br />
<strong>Mexico</strong> <strong>Chemicals</strong>:<br />
Building A Better Future<br />
The country’s chemical sector prepares itself for a new era of the Mexican economy<br />
Introduction: Recovery continues<br />
as structural reforms spur optimism<br />
In the wake of <strong>Mexico</strong>’s historic approval of structural reforms at the<br />
end of 2013, the Mexican market has been frenzied with optimism<br />
and growth projections. President Enrique Peña Nieto’s success in<br />
pushing through this reform package is certainly one worth celebrating,<br />
and now that the reforms have been approved, the business<br />
community is more clearly evaluating its opportunities across sectors.<br />
For <strong>Mexico</strong>’s chemical industry, the opening up of the country’s<br />
oil and gas sector could be the game changer.<br />
Declining since the 1990s, the Mexican chemical sector has struggled<br />
under the weight of Pemex and international competition. As<br />
<strong>Mexico</strong>’s economy is the most linked to that of the United States<br />
among Latin American countries, the country has also been the most<br />
affected by the US recession. Yet over five years on, <strong>Mexico</strong> has taken<br />
the lead in regional growth as its fellow powerhouse Brazil enters<br />
a recession. Upstream private investment spurred by the reforms<br />
could create downstream benefits to place the Mexican chemical<br />
market more firmly on the map.<br />
“<strong>Mexico</strong> has developed quite well since the crisis; we suffered perhaps<br />
the most in Latin America due to our proximity and close relationship<br />
with the United States, but this also helped our companies<br />
to make the most of our resources and become stronger,” said Fernando<br />
Hernández, head of country services for Clariant.<br />
In the context of the wider economy, the past two years have<br />
seen relatively low growth in <strong>Mexico</strong>, with a GDP growth of 1.1%<br />
in 2013 and a forecast for <strong>2014</strong> that was downgraded from 3%/4%<br />
to 2.3%/3.3%. Brighter prospects for the year ahead are being<br />
boosted by the country’s strong sectors like automotive and<br />
food and beverage, markets which are prime targets for chemical<br />
consumption.<br />
Strong demographics, with over 52% of the population under 25,<br />
and a growing middle class present robust growth opportunities<br />
going forward. “<strong>Mexico</strong>’s GDP growth for 2015 is estimated to be<br />
around 3.8% in a market of 120 million inhabitants, with flourishing<br />
industries in many sectors,” said Carlos Orbegozo, director of Merck<br />
Millipore <strong>Mexico</strong>.<br />
Amidst the backdrop of relative economic growth, the Mexican<br />
chemical sector has posted encouraging numbers following nearly<br />
two decades of decline. Apparent domestic chemical consumption<br />
in <strong>Mexico</strong> has risen steadily from $33.7 billion in 2011 to $35.7 billion<br />
in 2012 and $37.1 billion in 2013. National production has not kept<br />
pace; however, after dips in 2011 and 2012, <strong>Mexico</strong> finally regained<br />
2010 levels in 2013 with an output of $17.6 billion.<br />
This incremental growth in chemical production has not been sufficient<br />
to stem the tide of <strong>Mexico</strong>’s growing trade deficit. The chemical<br />
sector’s trade balance hit a five-year low in 2013 with imports of<br />
$31.3 billion and exports of $11.8 billion. While exports have made<br />
a net increase in the last five years, this gain has not kept up with<br />
imports coming in to meet growing domestic demand.<br />
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MEXICO CHEMICALS PRE-RELEASE<br />
Fernando Hernández,<br />
head of country services,<br />
Clariant<br />
lenge to the industry threatens, as domestic<br />
producers must soon contend with chemical<br />
capacity expansions underway in the United<br />
States. <strong>Mexico</strong>’s government will have<br />
to fine-tune its policies toward the chemical<br />
sector to ensure adequate incentives bring<br />
in international players and bolster domestic<br />
companies.<br />
“With the coming of this new government<br />
we thought that there was going to be<br />
recovery, nevertheless, in the first year<br />
we have seen the opposite,” said Juan Manuel<br />
Díaz, president of the chemical sector<br />
for CANACINTRA. “If there is no activation of<br />
the internal market, it will be very difficult for<br />
the industrial sector to maintain its position.”<br />
Can <strong>Mexico</strong>’s Structural<br />
Reforms Revive Chemical<br />
Manufacturing in <strong>Mexico</strong>?<br />
Industry leaders are hanging hopes on the<br />
reforms providing the much needed impetus<br />
to bring manufacturing back to <strong>Mexico</strong>. In<br />
the future, the opening of the energy sector<br />
is expected to have a twofold impact on<br />
chemical production in <strong>Mexico</strong> as manufacturers<br />
count on energy and feedstock prices<br />
decreasing. “The government reforms will<br />
bring <strong>Mexico</strong> back to the production levels<br />
witnessed during the late 1980s and early<br />
1990s, when <strong>Mexico</strong> was the seventh largest<br />
petrochemical producer in the world. Al-<br />
Chemical synthesis and blending manufacturing capabilities at Grupo Polak’s Tlaxcala facilities. Photo<br />
courtesy of Grupo Polak.<br />
“With over $30 billion of raw materials imported,<br />
the chemical sector is still active<br />
but is less integrated. Because <strong>Mexico</strong>’s<br />
main export markets are in North America<br />
and Europe, which are the most effected<br />
by recession, Mexican exports have stayed<br />
at the same level,” explained Gilberto Ortiz,<br />
vice president of energy within the chemical<br />
sector for industry association CANACIN-<br />
TRA and general director of law firm Gilberto<br />
Ortiz y Asociados.<br />
With the promise of Nieto’s approved structural<br />
reforms, the chemical sector is hoping<br />
for its recovery to accelerate. Expectations<br />
will have to be tempered, however, as investors<br />
remain in wait-and-see mode regarding<br />
downstream developments. A further chalthough<br />
it may take five to ten years, reaching<br />
growth of 5.5% within the petrochemical industry<br />
is certainly possible for <strong>Mexico</strong>,” predicted<br />
Miguel Benedetto, general director of<br />
<strong>Mexico</strong>’s largest chemical association ANIQ.<br />
Already rising labor costs and increasingly<br />
strict environmental regulations in China<br />
have brought manufacturers back to North<br />
America. “Many companies that moved operations<br />
to China are now returning to North<br />
America. <strong>Mexico</strong> offers a viable option for<br />
businesses. The Mexican workforce is highly<br />
competitive in cost and quality compared<br />
to Asia. There are also significant logistical<br />
advantages in <strong>Mexico</strong> when serving the US<br />
market,” said Herwig Bachmann, general director<br />
of Evonik <strong>Mexico</strong>.<br />
Yet optimism remains cautious regarding the<br />
impact of the structural reforms. Industry<br />
leaders have voiced concerns that the downstream<br />
implications of the energy reforms<br />
are not well defined and international companies<br />
have yet to confirm investments in refining<br />
or petrochemical processing capacity in<br />
<strong>Mexico</strong>. “The only difference between promises<br />
of the past and this current plan for reform<br />
is that there is judicial reform accompanying<br />
these policies; however these reforms<br />
are still partial and are open to misinterpretation.<br />
The impact may not be as drastic as<br />
many people might imagine,” said Gregory<br />
Polak, general director of Grupo Polak.<br />
With a slew of cracking facilities slated to<br />
come online in the United States starting<br />
in 2017, Mexican producers will have to<br />
cope with regional competition made fierce<br />
by US shale gas prices. According to reports<br />
by Bloomberg, global chemical manufacturers<br />
are investing a record $72 billion in<br />
US facilities. “The new energy reform will<br />
help remedy some of the problems with<br />
Pemex but there is a risk that this shakeup<br />
has come 20 years too late. Now that the<br />
United States is well on the path to becoming<br />
a major shale gas producer and petrochemical<br />
hub, there may be much lower<br />
demand for Mexican products,” said Alfredo<br />
Ison, general director of chemical distributor<br />
Química Delta.<br />
In this context, competitive reindustrialization<br />
is a top priority for the industry. “There<br />
is a list of about 3,000 products that are no<br />
longer manufactured in <strong>Mexico</strong> and we need<br />
to bring them back to the country,” said Ortiz<br />
of CANACINTRA.<br />
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Through a CANACINTRA committee established<br />
to study <strong>Mexico</strong>’s lost production<br />
chains, the association has determined the<br />
country has competitive potential to recover<br />
production in gas and natural gas derivatives,<br />
oil derivatives, and natural products. “Most<br />
importantly we need to develop refining capacity<br />
to develop oil derivatives to support<br />
downstream manufacturing. This would give<br />
us competitiveness again, but since there is<br />
an excess of refining capacity in the United<br />
States there is not short-term interest. We<br />
have hopes for more interest in refining in<br />
the longer term,” said Ortiz of CANACINTRA.<br />
As the impacts of the structural reforms will<br />
first need to trickle down from upstream<br />
developments, benefits to chemical companies<br />
will arrive in the medium to long term<br />
and have the potential to be diluted. “It is<br />
important for companies in the country not<br />
to rely on these reforms for increased business<br />
alone; they must continue to improve<br />
their standards so as to keep up with an<br />
evolving global market,” counseled Hernández<br />
of Clariant.<br />
Internal picture of a portion of Evonik’s warehouse operation. Photo courtesy of Evonik <strong>Mexico</strong>.<br />
<strong>Mexico</strong> deepens its ties<br />
with the global economy<br />
<strong>Mexico</strong>’s trade advantages are only set<br />
to multiply as the structural reforms come<br />
to fruition. The chemical market has been<br />
radically affected by the 1994 signing of NAF-<br />
TA, which brought a flood of foreign-made<br />
chemical products into the market.<br />
The facilitating of trade between the United<br />
States and <strong>Mexico</strong> put pressure on domestic<br />
chemical manufacturing, while also opening<br />
its borders with the largest global economy.<br />
“Twenty years ago we integrated our country<br />
into the global market and opened our<br />
borders to foreign trade by signing the North<br />
American Free Trade Agreement. Since that<br />
time, we have multiplied our exports by seven<br />
and FDI inflows have increased fourfold,”<br />
said Ildefonso Guajardo, <strong>Mexico</strong>’s secretary<br />
of the economy.<br />
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Bright outlook for<br />
Mexican chemicals<br />
Miguel Benedetto, director general of<br />
ANIQ, discusses the growth potential<br />
of <strong>Mexico</strong>’s chemical sector<br />
Please begin by telling us about ANIQ<br />
and the main milestones that have occurred<br />
since its inception?<br />
ANIQ was founded in 1959 and has grown<br />
to 240 members that represent over 95%<br />
of the companies that produce and distribute<br />
chemicals in <strong>Mexico</strong>. ANIQ divides the<br />
chemical industry into 19 unique sectors<br />
and the largest of these sectors are synthetic<br />
resins, synthetic fibers, pigments and<br />
dyes, fertilizers, and adhesives and sealants.<br />
The primary role of ANIQ is to lobby the federal<br />
government in order to increase competitiveness<br />
and contribute to the development<br />
of the industry. ANIQ also provides<br />
training to those involved in the chemical<br />
industry, and trains between 4000 and 5000<br />
people annually in areas such as safety, environment,<br />
energy, foreign trade, and union<br />
relationships. As the characteristics of the<br />
chemical industry are particular, ensuring<br />
safety is a primary objective for ANIQ. Internally,<br />
ANIQ has the largest staff of any association<br />
in <strong>Mexico</strong> with over 80 employees<br />
and has three different sites that we operate<br />
from, including a training facility.<br />
The government’s recently approved<br />
structural reforms are expected to improve<br />
the climate for petrochemical manufacturing<br />
in <strong>Mexico</strong>. What are the key<br />
factors making this possible?<br />
This prospect of growth is possible thanks<br />
to three contributing factors: the availability<br />
of feedstocks, the price of feedstocks,<br />
and the geographic positioning of <strong>Mexico</strong>.<br />
<strong>Mexico</strong> still has an abundance of feedstocks<br />
available that are competitively priced. Second<br />
only to the Middle East, <strong>Mexico</strong> has<br />
the most competitively priced feedstocks in<br />
the world. The availability and price of feedstocks<br />
paired with <strong>Mexico</strong>’s ideal geographical<br />
location opens a world of possibilities<br />
for petrochemical producers and all those<br />
involved in the chemical industry.<br />
In addition, the government reforms and the<br />
opening of Pemex will allow for a large substitute<br />
of imports and a rapid development<br />
of technological capabilities. Currently over<br />
80% of the requirements needed for petrochemicals<br />
are being imported into <strong>Mexico</strong>.<br />
National production will increase as a result<br />
of the reforms and the country will become<br />
more self-sufficient. In addition, new international<br />
players that partner with Pemex<br />
will bring new technologies and capabilities,<br />
which will allow <strong>Mexico</strong> to exploit resources<br />
that until now have been left alone.<br />
Small- to medium-sized organizations<br />
make up a large majority of the Mexican<br />
economy. In addition to working with<br />
large multinationals, does ANIQ collaborate<br />
with these small organizations?<br />
Approximately 50% of ANIQ’s memberships<br />
are small- to medium-sized organizations<br />
and 55% of the members are funded<br />
by national capital. Currently the chemical<br />
industry in <strong>Mexico</strong> employs 60,000 people.<br />
ANIQ forecasts that during the next 10 years<br />
this number will double to 120,000 people,<br />
a large percentage of which will remain in<br />
these small to medium-sized companies.<br />
How do you expect that ANIQ will transform<br />
in the next five years?<br />
ANIQ’s current members consist solely of<br />
chemical and petrochemical companies.<br />
Moving forward, it is expected that ANIQ<br />
will begin to offer services for the oil and gas<br />
community. This will attract new members<br />
and will expand the focus of the services that<br />
we currently offer. Lobbying in the Mexican<br />
oil and gas sector has been limited to Pemex,<br />
but in the future, ANIQ will aim to lobby on<br />
behalf of these new members, which will further<br />
develop our capabilities internally.<br />
<strong>Mexico</strong> has gone on to further develop its<br />
trade links by signing numerous free trade<br />
agreements with other global trading powers.<br />
“<strong>Mexico</strong> currently has 44 free-trade<br />
agreements (FTAs) with numerous countries<br />
all over the world and participates in FTAs<br />
with every Latin American country other<br />
than Brazil. Most recently Peru, Chile, and<br />
Colombia have entered into FTAs with <strong>Mexico</strong>,<br />
and <strong>Mexico</strong> is currently in discussions<br />
with Turkey in order to build this relationship,”<br />
said Benedetto of ANIQ.<br />
In the wake of NAFTA, Mexican companies<br />
were quick to take advantage of its trade<br />
partners to the north, although arguably at<br />
the cost of its trade ties with the rest of Latin<br />
America. With the 2012 signing of the Pacific<br />
Alliance, a trade bloc consisting of <strong>Mexico</strong>,<br />
Chile, Colombia, and Peru, <strong>Mexico</strong> is refocusing<br />
on synergies to its south. The group,<br />
which aims to integrate all of its respective<br />
trade agreements, agreed early on in negotiations<br />
to the immediate elimination of all<br />
tariff items for the chemical sector. “<strong>Mexico</strong><br />
was very important in commercializing petrochemical<br />
products in South America; however<br />
with NAFTA <strong>Mexico</strong> has shifted its trade<br />
focus. Now the government is taking steps<br />
to reestablish trade with South America with<br />
the Pacific Alliance to strengthen relations,”<br />
said Ortiz of CANACINTRA. “Because <strong>Mexico</strong><br />
is not a part of the Mercosur bloc, we<br />
have to gain more confidence in the Latin<br />
American market.”<br />
Looking across the Pacific, <strong>Mexico</strong> has<br />
also taken an active role in negotiating the<br />
Trans-Pacific Partnership, an initiative to<br />
sign a free trade agreement between countries<br />
in Asia Pacific and North and South<br />
America, including Canada, the United<br />
States, <strong>Mexico</strong>, Chile, Peru, Australia, New<br />
Zealand, Malaysia, Singapore, Vietnam,<br />
Brunei and Japan. ANIQ has participated<br />
in these talks, lobbying on behalf of the<br />
industry for the proposed elimination of<br />
tariffs between member countries for manufactured<br />
products including chemicals,<br />
plastics, scientific instruments and electrical<br />
machinery.<br />
Petrochemicals<br />
Unlike oil and gas exploration and extraction,<br />
petrochemical manufacturing in <strong>Mexico</strong> has<br />
already been opened to the private sector.<br />
Private sector involvement has been limit-<br />
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ed to secondary processing, however, with<br />
basic and intermediate production being<br />
handled by state entities. Despite the open<br />
market, which has led to a Unigel-Pemex<br />
petrochemical partnership and now a massive<br />
Braskem Idesa ethylene joint venture,<br />
foreign companies have been wary of surety<br />
of supply over the years. “The difficulty before<br />
was that foreign petrochemical companies<br />
were not totally confident that Pemex<br />
would be able to supply them with raw materials,”<br />
said Ison of Química Delta. “Now<br />
we hope that the predicted heavy investment<br />
upstream will help boost confidence<br />
and attract investment further downstream.<br />
<strong>Mexico</strong> needs this new capacity because the<br />
country currently relies overly on imports to<br />
meet domestic demand for gasoline.”<br />
José Luis Uriegas,<br />
general director,<br />
Grupo Idesa<br />
<strong>Mexico</strong>’s first major petrochemical<br />
investment in 20 years advances<br />
With over 60% of the requirements needed<br />
for petrochemicals currently being imported<br />
into <strong>Mexico</strong>, the decision by Brazilian petrochemical<br />
player Braskem and Mexican chemical<br />
company Grupo Idesa to invest in a $4.5<br />
billion polyethylene facility is a much-needed<br />
step towards correcting <strong>Mexico</strong>’s raw<br />
material deficit. “As of today, <strong>Mexico</strong> is importing<br />
1.3 million mt/y of polyethylene. The<br />
production capacity of the Braskem Idesa<br />
plant, Etileno XXI, will be 1.05 million metric<br />
mt/y, which will help <strong>Mexico</strong> to substitute<br />
its imports with local production, particularly<br />
imports coming from North America. This is<br />
convenient for local customers, who are able<br />
to have closer technical support and rely less<br />
on inventory,” said José Luis Uriegas, general<br />
director of Grupo Idesa.<br />
The Etileno XXI project will need secure<br />
access to competitive raw materials, a risk<br />
which Brakem Idesa has managed to mitigate<br />
with a government commitment to<br />
supplying ethane over the long-term. “This<br />
was by far the most important ingredient in a<br />
project such as this. You cannot invest close<br />
to $5 billion in a project without the complete<br />
insurance of the supply of competitive raw<br />
materials,” explained Uriegas.<br />
While certainly a positive step forward, Braskem<br />
Idesa’s Etileno XXI project is not a silver<br />
bullet. Growing petrochemical demand will<br />
be too great to be satisfied with one facility,<br />
albeit it of this scale. “Although there will be<br />
new production plants set up to create raw<br />
materials domestically, such as the Braskem<br />
Idesa project, imports will continue to be vital<br />
for Mexican producers,” said José Carlos<br />
Tapia, general director of chemical distributor<br />
Trichem. “<strong>Mexico</strong> will continue to be a net<br />
November <strong>2014</strong><br />
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GPB’s Investigation and Development staff is a team with wide experience on etoxilation and propoxilation processes development; they have created innovative<br />
technologies for the production of Hydroxyethylcellulose, synthetic lubricants, and polyalquilenglycols of high molecular weight. Photo courtesy of GPB.<br />
Pemex Policies Shape Petrochemical<br />
Landscape throughout the Years<br />
Othón Canales, chairman of chemical<br />
distributor Quimi Corp, outlines the<br />
history of Pemex’s petrochemical developments<br />
and its impact on the private<br />
sector over the last three decades.<br />
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At the time when Pemex invested in its<br />
first ammonia plant in the early 1960s,<br />
<strong>Mexico</strong> was a closed economy. When the<br />
ammonia and other products plants were<br />
built, the private sector immediately invested<br />
in downstream plants. This created<br />
a scenario unique to <strong>Mexico</strong> in which<br />
primary petrochemicals were made by<br />
Pemex and secondary petrochemicals<br />
were made by private industry. By the<br />
1980s Pemex was one of the main producers<br />
of ammonia in the world. As a<br />
result, the private sector was investing<br />
in more downstream capacity. Not long<br />
after, however, <strong>Mexico</strong> signed the General<br />
Agreement on Tariffs and Trade (GATT)<br />
in the early 1990s and eventually NAF-<br />
TA. With the opening of the economy,<br />
<strong>Mexico</strong> was flooded with petrochemicals.<br />
At this time the government decided<br />
to discontinue its focus on the petrochemical<br />
industry and stopped investing<br />
in Pemex’s petrochemical plants. This<br />
brought the private sector to a halt, as<br />
they were not able to back integrate raw<br />
materials.<br />
Under the regime of President Carlos<br />
Salinas, Pemex was broken into five independent<br />
entities (one corporate and<br />
four subsidiaries), which had negative<br />
implications for the private sector. The<br />
Ministry of Finance interfered with transactions<br />
between the subsidiaries and determined<br />
the price at which Pemex’s gas<br />
was sold. The price of gas was based on<br />
the price of gas in Texas and adjusted for<br />
freight and transportation cost. Immediately<br />
the price of gas soared in <strong>Mexico</strong><br />
and Pemex decided to shut down its ammonia<br />
plants. Urea producers in <strong>Mexico</strong><br />
lost their source of ammonia and CO2<br />
and many producers collapsed. Over<br />
these years there were only a few survivors<br />
in the private petrochemical sector,<br />
including Grupo Idesa, Alpek, Kuo and<br />
Mexichem.<br />
importer of these raw materials for the nearterm.”<br />
Private players harness the power<br />
of Pemex<br />
Pemex continues to play an influential role in<br />
the industry, supplying the main feedstocks<br />
to producers and consuming a majority of<br />
the industry’s output. As a result, weak performance<br />
by the global oil and gas giant in<br />
chemical sales, sustaining a 6.6% decline<br />
in 2013, is being felt further down the value<br />
chain.<br />
“When we started our facility six years ago,<br />
Pemex used to supply us with five very<br />
important raw materials. They have since<br />
stopped producing these products that we<br />
José Carlos Tapia Bueno,<br />
general director,<br />
Trichem<br />
November <strong>2014</strong>
MEXICO CHEMICALS PRE-RELEASE<br />
now have to get through importers. Today we<br />
import roughly 70% of our raw materials,”<br />
said Moises Preciado, general director of Barnices<br />
y Resinas.<br />
Grupo Petroquimico Beta (GPB), the only<br />
Latin American company producing hydroxyethyl<br />
cellulose, has its production plant in<br />
Coatzacoalcos, Veracruz, strategically situated<br />
in between Pemex Petroquímica’s Cangrejera<br />
and Morelos plants. “GPB receives a<br />
substantial portion of its feedstock through a<br />
pipeline that comes directly from the Pemex<br />
facility; this is a substantial agreement for us.<br />
We have developed a lubricant that takes five<br />
minutes to transport to Pemex which allows<br />
us to be very flexible in terms of our client offerings,”<br />
said Raúl Baz, president and general<br />
director of GPB. “Our goal is to start manufacturing<br />
more of the products that Pemex<br />
will need as it opens up at a better price than<br />
our competitors so that we can build on this<br />
relationship.”<br />
In order to combat rising imports, Baz at GPB<br />
advises companies focus on specialty petrochemical<br />
products destined for domestic use.<br />
“GPB has a very important R&D team based<br />
out of <strong>Mexico</strong> that receives 5% of our sales.<br />
They work on consistently developing the latest<br />
HEC products as well as other polymers.<br />
<strong>Mexico</strong> imports more petrochemical products<br />
than it exports oil, which is something<br />
that needs to change. The Mexican industry<br />
as a whole should move to manufacture<br />
more specialty chemicals that can be applied<br />
to the oil and gas sector, and we aim to adopt<br />
this strategy at GPB,” said Baz of GPB.<br />
Agrochemicals<br />
<strong>Mexico</strong>’s agrochemical sector is dominated<br />
by global players accounting for 70% of the<br />
market, followed by a highly fragmented<br />
market of small- and medium-sized companies.<br />
While consolidation has occurred in the<br />
last five years, significant potential remains<br />
for further merger and acquisition activity.<br />
Domestic and global players alike have been<br />
constrained by the introduction of 2004 regulations<br />
restricting production registration,<br />
while a growing focus on innovation presents<br />
opportunities for companies with R&D<br />
capability.<br />
As the global population increases, agrochemicals<br />
will play a more important role in<br />
agriculture. “In <strong>Mexico</strong>’s particular case, by<br />
the year 2050 our country will have around<br />
150 million inhabitants, who will demand a<br />
greater quantity of food,” says Maria Eugenia<br />
Villanueva, executive director of <strong>Mexico</strong>’s<br />
largest crop protection association PROC-<br />
CYT. “Our industry plays a fundamental<br />
role supporting agriculture to increase production,<br />
cover the food needs of a growing<br />
population and reduce the dependency on<br />
importing food from abroad. Without the use<br />
of agricultural consumables supplied by our<br />
industry, productivity of all types of crops, including<br />
conventional, hybrids, transgenic and<br />
even organic, will be reduced up to 40%.”<br />
Strict regulations spur market alignment<br />
Since product registration regulation for<br />
agrochemicals was changed in 2004, the<br />
process has beleaguered the industry. While<br />
José Escalante, president<br />
of Velsimex and vice<br />
president of agrochemical<br />
association UMFFAAC<br />
companies both international and local in<br />
scope have struggled with these regulations,<br />
which have been described as unclear and<br />
lacking transparency, domestic manufacturers<br />
have been most affected. Overtime, political<br />
opposition to the sector has taken its<br />
toll on production.<br />
“In <strong>Mexico</strong> registration is done through<br />
the Federal Commission for the Protection<br />
against Sanitary Risk (COFEPRIS), which is<br />
part of the Ministry of Health. There is political<br />
opposition to agrochemicals within<br />
the government driven by the Green Party<br />
and they are not issuing any permits or registrations,<br />
which has brought the industry<br />
to a standstill,” said Gregory Polak, general<br />
director of Grupo Polak, whose subsidiary<br />
Polaquimia manufactures agrochemicals. “In<br />
agrochemicals Polaqiumia is the only company<br />
in <strong>Mexico</strong> that is still manufacturing molecules<br />
for agrochemical active ingredients.<br />
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We were the first company and now the last,” said Polak.<br />
Although updated regulations were issued in 2010, the process remains<br />
prohibitively costly for many companies in the market. Yet this<br />
cost is necessary to ensure the safety of the industry’s products,<br />
argues José Escalante, president of Velsimex and vice president of<br />
agrochemical association UMFFAAC. “The new regulations are great<br />
improvements when compared to the previous. Velsimex understands<br />
that the market needs to be regulated as the general public is<br />
consuming many of our products but there also has to be incentive<br />
to make money. The new regulation is much more balanced,” he said.<br />
With regulations now slightly more in check, agrochemical manufacturers<br />
in <strong>Mexico</strong> are focused instead on staying competitive in a rapidly<br />
consolidating global industry.<br />
FMC Corporation announced late this year that is would acquire<br />
Cheminova, the Denmark-based crop-protection company<br />
for $1.8 billion. Both companies have significant footprints in <strong>Mexico</strong><br />
and their integration will commence when the sale is completed<br />
in the early 2015. This is the second major agrochemical deal of<br />
the year affecting <strong>Mexico</strong> after Chemtura announced it would sell<br />
its agrochemical business to Platform Specialty Products Corporation<br />
in early <strong>2014</strong>.<br />
Within the domestic market, producers are further squeezed by<br />
raw material availability. “Since 2009, the government has closed<br />
all semi-official companies that were supplying raw materials used<br />
to manufacture urea, ammonia, and phosphoric acid, which are very<br />
necessary for agriculture. This has led to Ibarquim having to fight for<br />
prices,” said Julián Ibarlucea, general director of Grupo Ibarquim.<br />
With Grupo Polak’s Polaquimia subsidiary one of the remaining active<br />
ingredients manufacturers in the Mexican market, agrochemical manufacturers<br />
are starved for raw materials. Without the option of relying<br />
on global networks as do the sector’s multinational heavyweights,<br />
domestic producers are seeking creative value chain solutions. “The<br />
key strategy to stay competitive is to import active ingredients. By<br />
doing business in China, you can reach the same low costs of multinationals<br />
and large domestic companies for active ingredients,” said<br />
Juan Manuel Ramírez, general director of Internacional Química de<br />
Cobre (IQC), which produces fungicides, insecticides and herbicides.<br />
“Beyond imports, smaller domestic companies like IQC also benefit<br />
from our structures. Compared to multinationals that have very large<br />
staffs, we can be more flexible and efficient.”<br />
On the other end of the supply chain, Velsimex is looking to take advantage<br />
of <strong>Mexico</strong>’s geographic position in order to become a top global<br />
player. “Velsimex is currently looking at Africa and Asia as potential<br />
markets but Latin America currently presents a very interesting market.<br />
<strong>Mexico</strong> has many shared idiosyncrasies with these countries and<br />
with the many trade agreements that exist between <strong>Mexico</strong> and these<br />
countries, the potential for Velsimex is truly great,” said Escalante.<br />
Innovating to feed a growing economy<br />
Expanding the sector’s in-country innovative capacity is crucial as<br />
<strong>Mexico</strong>’s small landowners face climate constraint and market<br />
consolidation. “Farmers are always looking for better quality seeds<br />
both in terms of yield and disease resistance. Roughly 75% of <strong>Mexico</strong>’s<br />
area is reliant on rainfall for its irrigation, which can affect the<br />
crops, climate and yield depending on whether there is an excess<br />
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Juan Manuel Ramírez<br />
Muro, general director,<br />
IQC<br />
of rainfall or a drought,” said Manish Sirohi,<br />
general manager at United Phosphorous de<br />
México.<br />
Companies are tapping into this need for innovation<br />
with investments in research and<br />
development capacity specifically within the<br />
Mexican market. United Phosphorus’s subsidiary<br />
Advanta will be establishing an R&D<br />
center in <strong>Mexico</strong> this year, while Syngenta<br />
will be investing in a Seed Care Institute in<br />
Jalisco to provide services in seed safety<br />
testing, treated seeds analysis, and formulations<br />
development and application.<br />
Yet introducing new technologies to the market<br />
can be challenging in a fragmented market.<br />
“The use of technology remains regional<br />
here in <strong>Mexico</strong> with the majority of farmers<br />
on the Pacific coast, mainly Sinaloa and Sonora,<br />
utilizing technology in their processes. In<br />
the middle of the country as well as towards<br />
the southeast, the adoption of technology in<br />
farming practices remains low,” said Ibarlucea<br />
of Grupo Ibarquim.<br />
Many small-scale farmers do not have access<br />
to new technologies or the funds to implement<br />
them. Without government support,<br />
this is unlikely to change in the short term.<br />
“Currently there is a huge demand for maize,<br />
sorghum and rice, but <strong>Mexico</strong> only produces<br />
22 million mt of maize annually, while it<br />
consumes 31 million mt/y. Rice farming areas<br />
have dropped by half, with production<br />
at around 180,000 mt/y and consumption<br />
at 1,000,000 mt/y,” explained Sirohi of United<br />
Phosphorous de México. “This needs<br />
to change. The government must take initiatives<br />
in providing both credit and education<br />
to meet these needs. The private sector has<br />
been attempting to do this, but it cannot and<br />
should not be held responsible for this on its<br />
own. Public-private partnerships will be key in<br />
making this change,” continued Sirohi.<br />
Faced with the lower purchasing power of<br />
small agricultural producers and low agrochemical<br />
prices from multinationals, players<br />
such as IQC have taken further innovative approaches<br />
to developing their value chains. In<br />
a partnership with the mining company VES<br />
Capital Partners, IQC is developing the Veta<br />
Grande silver-copper project as a mine with<br />
on-site processing and refining capacity. “We<br />
plan to continue this model in the future and<br />
acquire various mining projects to put into<br />
operation. The copper we are mining we can<br />
then refine into copper sulfate and use for<br />
IQC’s production, making our business more<br />
vertically integrated” said Ramírez of IQC.<br />
Paints and Coatings<br />
Latin America, previously a supplementary<br />
market for many paints and coatings producers,<br />
is quickly shifting to the forefront of corporate<br />
strategies.<br />
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Transactions spike amidst optimism<br />
A number of high profile mergers and acquisitions<br />
have taken place in the last 18 months,<br />
indicating an attractive and active sector with<br />
significant growth potential. In the last year,<br />
industry leader Mexichem purchased Poly-<br />
One’s specialty vinyl dispersion, blending,<br />
and suspensions resin facilities in Ohio for<br />
$250 million, while Axalta Coating Systems<br />
is expanding capacity within <strong>Mexico</strong> with a<br />
$10.5 million investment in their Tlalnepantla<br />
facility for transportation coatings.<br />
Chemical giant DuPont, which has had manufacturing<br />
in <strong>Mexico</strong> since the early 1950s,<br />
is in the process of a global divestiture of its<br />
performance chemicals segment. The $7 billion<br />
per year unit will be spun-off, and follows<br />
the 2013 sale of the giant’s automotive coatings<br />
business to Carlyle Group, which today<br />
is Axalta.<br />
Global paint supplier Sherwin-Williams has<br />
set its sights on Latin America as a major<br />
growth market, taking advantage of <strong>Mexico</strong>’s<br />
proximity to the US market by headquartering<br />
its new Latin American coatings group<br />
in <strong>Mexico</strong> City. “The protective and marine<br />
industries are growing very fast; considering<br />
the new regulations surrounding those areas,<br />
Sherwin-Williams is hoping to see the<br />
most growth there,” said Gerardo Gurrola, director<br />
of research and development at Sherwin-Williams<br />
<strong>Mexico</strong>.<br />
Sherwin-Williams’ decision to invest in a<br />
regional coatings group follows a thwarted<br />
attempt to acquire family-owned Mexican<br />
paints giant Comex. A 2012 bid by the company<br />
to buy Comex would have doubled their<br />
Latin American business but was rejected<br />
due to antitrust issues.<br />
Comex has proved an attractive target, as a<br />
Maggie Flor Gómez,<br />
general director,<br />
Charlotte Chemical<br />
AP plant located in Queretaro, <strong>Mexico</strong> which develops high quality water and solvent based products.<br />
Photo courtesy of AP.<br />
new acquisition deal was announced in June<br />
<strong>2014</strong>, this time with PPG Industries as the<br />
buyer. PPG Industries’ acquisition of Comex<br />
is currently under review by <strong>Mexico</strong>’s Federal<br />
Economic Competition Commission. A decision<br />
on the transaction, valued at $2.3 billion,<br />
is expected in the fourth quarter following an<br />
October extension made by the commission.<br />
“PPG is not strong in the architectural market,<br />
which is our strongest point in <strong>Mexico</strong>,<br />
so we see great opportunities for synergy<br />
there. They also do not have any operations<br />
in this part of <strong>Mexico</strong>, so we are looking to<br />
work with them in this regard. We are also<br />
hoping to take advantage of their knowledge<br />
and experience with industrial OEMs<br />
to expand our network in that market,” said<br />
Alejandro Morones, vice president of global<br />
research and development at Comex.<br />
Synergies with the US market are growing<br />
among Mexican paints and coatings providers,<br />
with Comex subsidiary AP, a producer<br />
of resins, now eyeing the market for expansion.<br />
“In the past, we focused our exports on<br />
the Latin America market, but more recently<br />
there has been a shift in the market and we<br />
are examining the United States as a potential<br />
expansion area,” said Luis de Vecchi, national<br />
director of sales at AP.<br />
Towards a more specialized<br />
and greener industry<br />
Along with the growing revenues of paints<br />
and coatings businesses in <strong>Mexico</strong>, producers<br />
are also responding to a demand coming<br />
from the market for better products. “<strong>Mexico</strong><br />
is seeing an increase in technology and<br />
higher quality of paints and products,” said<br />
Samuel Troice, general director of Pinturas<br />
Acuario.<br />
Particularly for <strong>Mexico</strong>’s fast-growing and<br />
export-focused automotive and aeronautic<br />
industries, finding international-standard local<br />
materials is key. “The coatings industry<br />
is growing much faster with the introduction<br />
of numerous specialty products for the energy<br />
sector and the automotive industry. There<br />
have been a growing number of parts manufacturers<br />
coming to <strong>Mexico</strong> that can provide<br />
an expanded market for us. Companies are<br />
very interested in trying new technologies<br />
and developing new products as the market<br />
matures,” said Maggie Flor Gómez, general<br />
director of chemical distributor Charlotte<br />
Chemical, and president of the chemical distribution<br />
section at ANIQ.<br />
The energy sector reforms are also opening<br />
up opportunities for advanced paints and<br />
coatings products. “PEMEX and CFE are going<br />
to start building new power plants as a<br />
part of the energy reforms. The kinds of coatings<br />
these will require are completely different<br />
than what we already produce, and this<br />
change is exciting to us,” explained Gurrola<br />
of Sherwin-Williams.<br />
“At the same time, the average customer<br />
has changed. Price is no longer the main<br />
issue; environmental friendliness, performance,<br />
and quality are all drivers for improvement<br />
in the industry to keep up with<br />
changing demand,” added Gómez of Charlotte<br />
Chemical.<br />
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With growing interest in environmentally-friendly<br />
products, companies are adjusting<br />
their product lines to meet consumers’<br />
increasingly stringent sustainability requirements.<br />
“The industry needs more green<br />
products. This is an idea that Comex has embraced<br />
recently, starting with the removal of<br />
lead from our paints. Being a larger company,<br />
it is easy for us to institute this change, and<br />
we are hopeful that others will follow,” said<br />
Morones of Comex.<br />
Specialty chemicals<br />
While the specialty chemical sector does<br />
not stand to benefit from <strong>Mexico</strong>’s energy<br />
reforms as directly as petrochemical producers,<br />
the market has nevertheless grown in<br />
recent years on the back of increasingly specialized<br />
sectors. Multinationals have found<br />
an expanding market for their specialty solutions,<br />
while both domestic producers and<br />
distributors are positioning themselves to<br />
take advantage of these growth opportunities.<br />
With margins for commodities increasingly<br />
shrinking, specialties are a robust solution<br />
to the challenging quest for profitability.<br />
Specialties wanted: Mexican<br />
manufacturing fuels growth<br />
In August, <strong>Mexico</strong> surpassed Brazil to garner<br />
the title of seventh largest automotive<br />
producer, on top of its rank as the world’s<br />
fourth largest exporter. OEMs are flooding<br />
into the country with a focus on high-end vehicles,<br />
including BMW, Kia, Mercedes-Benz<br />
and a joint venture between Renault-Nissan<br />
and Daimler. Conscious of this golden opportunity,<br />
<strong>Mexico</strong>’s chemical manufacturers are<br />
gearing up their specialty divisions to meet<br />
the needs of these luxury vehicles. “<strong>Mexico</strong><br />
is becoming a key market for our products in<br />
the automotive manufacturing sector, which<br />
is growing very fast. The boom in the automotive<br />
industry is one of the most important<br />
expectations that we have in 2015 and the<br />
coming years,” said Álvaro Galindo, sales<br />
manager for Dow Corning de México.<br />
Dow Corning’s products for the Mexican automotive<br />
sector are targeting performance<br />
improvements such as reducing noise, vibration<br />
and harshness; long-term lubrication<br />
and extreme temperature resistance. The<br />
Mexican Association of the Automotive Industry<br />
(AMIA) forecasts Mexican automotive<br />
production reaching 4.5 million vehicles by<br />
2020, up from an expected 3.2 million vehicles<br />
for <strong>2014</strong>, meaning the market has huge<br />
growth potential for chemical suppliers.<br />
EIQSA, a PVC compounding company founded<br />
in 1954, like many of its counterparts is<br />
making the automotive sector a key focus for<br />
research and development activities. “Our<br />
main plan is to be more present in the automotive<br />
industry, which is growing very quickly<br />
in <strong>Mexico</strong>,” said Ezra Bejar, deputy director<br />
general of EIQSA. “The aeronautical industry<br />
is also growing in <strong>Mexico</strong> and we are looking<br />
to penetrate this market with our materials,<br />
specifically in compounds.”<br />
Specialty giant Eastman, which grew from<br />
an import office in the country to owning two<br />
plants in <strong>Mexico</strong> via its global acquisitions,<br />
now derives a significant portion of its Latin<br />
American business from <strong>Mexico</strong>. “<strong>Mexico</strong><br />
represents a significant portion of Eastman’s<br />
Latin American market,” said Juan Carlos<br />
Parodi, vice president and managing director<br />
of Latin America at Eastman. “We have very<br />
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Eastman’s Uruapan Manufacturing Site. Photo courtesy of Eastman.<br />
diversified markets that we work in, with a key focus on the automotive<br />
sector, building and construction and industrial intermediates.”<br />
Global specialties company Evonik has manufactured chemicals in<br />
<strong>Mexico</strong> since 1968 and expects manufacturing to remain the company’s<br />
main focus in <strong>Mexico</strong> in spite of the expected changes coming<br />
to the market. “The Mexican population will have more buying power<br />
and will consist of a larger middle class that is able to afford higher<br />
value products. These shifts in the market will lead to more opportunity<br />
for Evonik requiring more specialty chemicals and products,” said<br />
Bachmann of Evonik <strong>Mexico</strong>.<br />
Evonik <strong>Mexico</strong> is planning to partner with Grupo Idesa through its<br />
100%-owned subsidiary CyPlus GmbH in a joint venture for the construction<br />
of a 40,000 mt/y capacity sodium cyanide plant in Coatzacoalcos.<br />
“This sodium cyanide plant will utilize cutting-edge technology<br />
in order to produce a raw material that is currently imported into<br />
<strong>Mexico</strong>. The market in <strong>Mexico</strong> continues to grow in an interesting<br />
way, and this partnership will yield substantial production over the<br />
next few years,” said Bachmann of Evonik <strong>Mexico</strong>.<br />
<strong>Mexico</strong>’s potential as an innovation hub<br />
As opportunities for specialties growth emerge from automotive and<br />
aerospace manufacturing, specialty players are also hopeful that the<br />
energy market will soon become more innovative as Pemex transforms.<br />
With Pemex looking to be more profitable and private oil and<br />
gas investors coming in, <strong>Mexico</strong> has the potential to become a center<br />
of excellence for energy-focused performance chemicals.<br />
“With the new reforms, many players will have the opportunity to<br />
offer new technologies and products. For Dow Corning, we are focusing<br />
particularly on our products that have applications in the oil<br />
and gas industry. Our silicones are very well-recognized for their high<br />
efficiency in antifoams and demulsifiers,” said Galindo of Dow Corning<br />
de México. “We plan to develop synergies with service providers<br />
to Pemex by offering new technologies and improving the productivity<br />
in Pemex.<br />
For global specialties giant Clariant, its modern ethoxylation plant<br />
located in Coatzacoalcos is 2 km from Pemex’s ethylene oxide facility,<br />
which makes the Clariant facility one of the company’s stronger<br />
manufacturing sites for ethylene oxide derivatives. At its Santa Clara<br />
complex, Clariant has applications labs, a distribution center and a<br />
multi-business site with productive plants belonging to pigments,<br />
masterbatches and industrial and consumer specialties. Its Puebla<br />
production site also houses laboratories for its functional minerals<br />
business unit.<br />
While multinationals and large domestic players are relying on<br />
their global R&D centers and deeper pockets, innovation is occurring<br />
on smaller scales thanks to cross-industry partnerships and<br />
collaboration with institutions. “Unfortunately, the government does<br />
not provide enough incentives to promote innovation; this comes<br />
from within the industry. Most companies here reinvest their<br />
profits to fund expansions and research, which becomes difficult for<br />
smaller companies like Macropol,” said Eloy Cordero, general director<br />
of Macropol. “The current reforms are a step in the right direction,<br />
First run on extruder. Photo courtesy of Macropol.<br />
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GPB’s plant inside the Coatzacoalcos<br />
Industrial park. Photo courtesy of GPB.<br />
Carving a niche in water treatment in <strong>Mexico</strong><br />
With high expectations in <strong>Mexico</strong>’s energy<br />
sector, producers and service providers<br />
for the water treatment market are<br />
preparing their offerings to meet this eventual<br />
growth. With global players expected<br />
to come in, along with their international<br />
standards, the market is readying itself<br />
for an uptick in demand for specialized<br />
solutions.<br />
SNF Floerger, a France-based provider<br />
of water soluble polymers and the largest<br />
global producer of polyacrylamides,<br />
views the country as a key market for marketing<br />
its products. “Today, <strong>Mexico</strong> is the<br />
biggest country in Latin America in terms<br />
of the market for water soluble polymers,<br />
with the polyacrylamide business worth<br />
$100 million a year,” said Rubioof SNF<br />
Floerger.<br />
For ChemTreat, a US-based water treatment<br />
company, demand for their products<br />
and services within <strong>Mexico</strong>’s chemical<br />
industry has been flat; however the company<br />
still counts among its clients some<br />
of <strong>Mexico</strong>’s large chemical players, providing<br />
water treatment services to the Pemex<br />
and Mexichem propylene joint venture,<br />
while also working with DuPont at their<br />
expansion in Tampico and with Mexichem<br />
again at Matamoros.<br />
As water treatment chemicals within<br />
the chemical sector specifically have not<br />
seen much growth, suppliers are looking at<br />
niche markets to apply their expertise. “We<br />
are very active in specialties such as home<br />
care and personal care. These specialties<br />
are driving the growth of the business here<br />
in <strong>Mexico</strong>,” said Rubio of SNF Floerger.<br />
The most promising applications for such<br />
specialties are in <strong>Mexico</strong>’s oil and gas<br />
market. The energy reforms have already<br />
prompted plans to enter the market for many<br />
of ChemTreat’s customers. “We have a<br />
lot of customers in the United States that<br />
are planning to come to <strong>Mexico</strong> with whom<br />
we already have corporate agreements.<br />
We also plan to eventually do business<br />
with Pemex,” said Raúl Morales, director of<br />
ChemTreat <strong>Mexico</strong>.<br />
SNF, which is making considerable investments<br />
into its chemical production facilities<br />
in North America, is also targeting the<br />
oil and gas market, creating polymers for<br />
Gulf Coast projects. When <strong>Mexico</strong>’s energy<br />
sector will partake in this North American<br />
boom remains a matter of debate.<br />
“In <strong>Mexico</strong>, this kind of growth is expected<br />
in the next five to ten years as investments<br />
are made in shale gas and offshore oil.<br />
We will not see the impact of the structural<br />
reforms for another five to 10 years. If the<br />
market evolves as expected, <strong>Mexico</strong>’s consumption<br />
of these kinds of chemicals will<br />
increase quickly,” said Rubio.<br />
As <strong>Mexico</strong>’s market grows and becomes<br />
more sophisticated, water treatment suppliers<br />
are looking to innovation to reduce<br />
safety risks and service costs.<br />
“We are offering smart release technology<br />
to our customers, which uses pellet chemicals<br />
instead of liquid chemicals. By packaging<br />
the chemicals in a bag in pellet-form<br />
and not in barrels, humans do not have to<br />
touch the chemicals and there is no chance<br />
of spills. It is a secure method that can be<br />
delivered through DHL or UPS and is biodegradable<br />
and phosphorous-free,” said<br />
Morales of ChemTreat.<br />
Speaking to the crucial importance<br />
of recycling water, SNF Floerger is devoting<br />
resources to developing new<br />
technologies. “There are many technologies<br />
like graphene, ultra filtration, and nuclear<br />
energy that will help us to treat water<br />
at lower costs. This is a focus for chemical<br />
companies right now because we have<br />
less and less water available from wells,”<br />
said Rubio of SNF Floerger. “Companies<br />
require intensive water consumption<br />
and must recycle as much as they can.”<br />
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ut it will be some time before we see government-funded<br />
innovation here.”<br />
In the absence of adequate government support,<br />
agile domestic players are consulting<br />
academic and research institutions to leverage<br />
their chemical expertise. “Resymat has<br />
an important agreement with the National<br />
Autonomous University of <strong>Mexico</strong> (UNAM),<br />
whose graduates with doctorates and master’s<br />
degrees we have working in our plants.<br />
We also have a partnership with Tecnologico<br />
de Monterrey focused on plastics. In addition<br />
to academic partnerships, we also have<br />
agreements with research companies such<br />
as Ciqua and Ciateq,” said Aldimir Torres,<br />
commercial director of Resymat, a market<br />
leader in polyester polyols.<br />
Going forward, <strong>Mexico</strong>’s potential to become<br />
a regional center for innovation in<br />
the chemical industry will depend upon<br />
Mexican companies taking a similar approach<br />
to research and development.<br />
Furthermore, as de Vecchi of AP predicts,<br />
the country’s strong demographics will<br />
prove to be a significant advantage. “<strong>Mexico</strong><br />
is poised to become a leader in innovation.<br />
Never before in the history of <strong>Mexico</strong> have<br />
we had such a demographic balance where<br />
50% of the country’s population is less<br />
than 25 years of age. The country’s young<br />
people will help <strong>Mexico</strong> to become an innovation<br />
hub, providing products and solutions<br />
that will be used around the world,” said<br />
de Vecchi.<br />
Distribution<br />
As consolidation occurs on a global scale for<br />
chemical distribution, growth opportunities<br />
are heating up for remaining players. On a<br />
regional scale, Latin America saw chemical<br />
distribution growth rates of 8.6% according<br />
to a recent report issued by the Boston Consulting<br />
Group. Within the Mexican context,<br />
on top of this growth chemical distribution<br />
enjoys a vital importance to the industry’s<br />
value chain.<br />
Consolidation breeds fierce competition<br />
As the trade imbalance persists for Mexican<br />
chemicals, distribution will continue<br />
to play a crucial role in the industry’s value<br />
chain. “<strong>Mexico</strong> continues to rely heavily on<br />
imports, as is evident by the 10% growth in<br />
imports annually, which is the result of growing<br />
demand for materials but flat domestic<br />
production,” said Tapia of distributor Trichem.<br />
“There is a net deficit of production close to<br />
$20 billion. Relative to the size of the industry,<br />
the chemical distribution market is huge,”<br />
added Othón Canales, chairman of the board<br />
of directors at Quimi Corp, a Mexican-based<br />
Latin American chemical distributor.<br />
In recent years, as chemical consumption<br />
continues to grow, the distribution market<br />
has attracted the attention of multinational<br />
distributors who are increasingly identifying<br />
<strong>Mexico</strong> as a prime target for expansions.<br />
Multinational interest has manifested itself<br />
in significant market consolidation as interna-<br />
November <strong>2014</strong> Global Business Reports // MEXICO CHEMICALS PRE-RELEASE 17
Photo courtesy of DVA.<br />
tional distributors are entering the market by acquiring local players.<br />
“In the early 2000s, the top ten chemical distributors in <strong>Mexico</strong> were<br />
all family-owned companies. Today it is a new world where big multinationals<br />
like Brenntag and Univar are acquiring more businesses,”<br />
said Johnny Silva, managing director of Disan <strong>Mexico</strong>, the Colombia-based<br />
Latin American chemical distributor.<br />
As a result, much of the distribution business has been transferred to<br />
the accounts of very few. This is in line with global trends, as chemical<br />
manufacturers are increasingly rationalizing their distribution<br />
channels. “Today, six or seven companies control approximately 30%<br />
of the market,” said Ison of Química Delta, one of the last remaining<br />
distribution leaders that is family-owned.<br />
Remaining players in the market are either international companies<br />
with aggressive growth plans or small, specialized distributors. “The<br />
distribution space in <strong>Mexico</strong> is a very fragmented one. The top few<br />
are very focused on commodity-type products, with the rest focused<br />
on a variety of products and services to support the industry. There<br />
are 80 registered distributors within ANIQ, but perhaps over 100<br />
including those who are not registered,” said Arturo Hoyo, country<br />
manager of Nexeo Solutions.<br />
Market consolidation is showing no signs of stopping as global companies<br />
like Nexeo are continuing to enter <strong>Mexico</strong> and looking for fast<br />
growth. “It is a large but somewhat disorganized market. As such,<br />
there are a number of distributors ready for partnerships in the interest<br />
of consolidating and combining efforts. Nexeo’s strategy is not<br />
about expanding our footprint so much as it is about improving our<br />
offering, so we have to conduct a very careful assessment of any<br />
potential partners. Not every company is a viable option for partnership,<br />
but we do see immense potential as we evaluate the market,”<br />
added Hoyo.<br />
Taking control of the supply chain<br />
To combat the fierce competition driven by a shrinking playing field,<br />
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chemical distributors are finding more ways<br />
to participate in the value chain, whether it is<br />
increasing value added service offerings or<br />
moving fully into production.<br />
Mexican specialty chemical distributor Macropol<br />
has responded to the quickened evolution<br />
of the market by adding in production capability.<br />
“Since 2007, we have been running<br />
a factory to produce chemical products as<br />
well; the idea is to support our commercial<br />
lines with this. In the past, products evolved<br />
every 20 to 25 years. Today the rate is much<br />
faster. Macropol’s activity is currently split<br />
70% distribution and 30% production. Our<br />
goal is to increase production to between<br />
50% and 60% by 2016,” said Cordero of<br />
Macropol.<br />
Pursuing a similar strategy, distributor<br />
Trade <strong>Chemicals</strong> is currently manufacturing<br />
and importing products in equal measure.<br />
“We hope to increase our manufacturing.<br />
The most important products for us are silicon<br />
emulsions, which are used in many<br />
markets,” said Miguel Valdivia, commercial<br />
director at Trade <strong>Chemicals</strong>. “A number of<br />
distributors are moving into manufacturing,<br />
which is a smart way to develop the supply<br />
chain. Overall, this move means better prices<br />
and increased competitiveness with other<br />
companies. We also have more control over<br />
the quality of our products when we are producing<br />
them since we know how they are<br />
made.“<br />
While specialty chemicals and niche materials<br />
have traditionally been left to small<br />
players, <strong>Mexico</strong>’s leading distributors are<br />
increasingly targeting specialties for growth,<br />
putting further pressure on small and medium-sized<br />
companies.<br />
Química Delta, which is aiming to increase<br />
its specialties and differentiated products<br />
business from 40% of overall sales to 60%,<br />
joins a rank of larger distribution players<br />
aiming to grow through specialties. “In the<br />
context of the market consolidation, it is important<br />
to find ways to add more value for<br />
our customers. This can be achieved not only<br />
through a focus on specialties but on products<br />
with higher value added in general,” said<br />
Ison of Química Delta.<br />
Colombia-headquartered distributor Disan<br />
has been in the Mexican market for ten years<br />
and is also targeting specialties for growth.<br />
“Disan has put a bigger focus on specialty<br />
products where there is room to grow<br />
and larger margins,” said Silva of Disan.<br />
“Large chemical manufacturers want to focus<br />
on their production, R&D, and key customers.<br />
This creates more and more opportunities<br />
for distributors to add value into the<br />
supply chain.”<br />
Taking advantage of global supply<br />
networks<br />
Only twenty years after NAFTA opened<br />
up <strong>Mexico</strong>’s markets to the world, chemical<br />
distributors are taking full advantage<br />
of <strong>Mexico</strong>’s geographic positioning and numerous<br />
free trade agreements to optimize<br />
their sourcing networks. Increasingly even<br />
domestic companies are opening branches<br />
in key markets around the world to find better<br />
prices and quality. “Charlotte Chemical<br />
has an office in San Antonio, which is mostly<br />
strategic. Most of our products are imported.<br />
Two percent of what we sell is locally<br />
produced, with the rest coming from<br />
the United States, the United Kingdom,<br />
India, China and Japan. Until the current<br />
reforms take effect, we will continue<br />
to import. We aim not to compete<br />
with local producers, so we sell things<br />
that are not available here,” said Gómez of<br />
Charlotte Chemical.<br />
Charlotte Chemical is one of many Mexican<br />
distributors scouring the globe, with many<br />
November <strong>2014</strong><br />
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19
Martin Sack, general<br />
director, Leschaco<br />
looking to China as the country’s reputation<br />
for quality improves. “More distributors<br />
are bringing items from China because the<br />
quality is getting better, but not in all cases.<br />
You have to be very selective in what you import<br />
from China. We were the first company<br />
in <strong>Mexico</strong> that imported products from China<br />
for the textile industry. In every case we have<br />
to double check the quality of the products,<br />
which involves asking for all of the specifications<br />
and certifications from companies<br />
before we start doing business with them,”<br />
said Salvador Solodkin, president of Mexican<br />
chemical distributor Materias Químicas de<br />
México (Maquimex).<br />
This global strategy succeeds in price competition<br />
and is enjoying greater acceptance<br />
in the market. “Five years ago, quality<br />
control would have been a major concern<br />
for us when working with companies in<br />
Asia. Nowadays, we are happy to say that<br />
suppliers there are equally as reliable as<br />
their European or American counterparts,”<br />
said Alonzo Autrey, general director of DVA<br />
Mexicana.<br />
Infrastructure and logistics<br />
As <strong>Mexico</strong> deepens its ties with global<br />
markets, logistics are increasingly affecting<br />
the industry’s bottom line. Covering large<br />
distances across the country and managing<br />
shipments in <strong>Mexico</strong>’s increasingly globalized<br />
economy has put stress on both<br />
manufacturers and distributors. As a result,<br />
the role of third party logistics is growing in<br />
the market, along with distributors who are<br />
stepping up to the logistics sphere.<br />
Infrastructure upgrades in the pipeline<br />
One of the key challenges facing the industry<br />
from a logistics perspective is the need for<br />
updated transport infrastructure, particularly<br />
when it comes to links between its biggest<br />
trading partner the United States. According<br />
to 2012 data, 77.5% of Mexican exports go<br />
the United States, yet transporting across<br />
the border remains costly.<br />
“The price of raw materials and logistics<br />
continues to be a major problem here in<br />
<strong>Mexico</strong>. The government has abandoned rail<br />
freight and instead continues to transport<br />
everything by road. This means additional<br />
costs for distributors,” said Ibarlucea of Ibarquim.<br />
This additional cost comes from road and rail<br />
networks that cannot support the volumes<br />
that need to be transported. “We have an<br />
insufficient highway network and we need<br />
a better railway system. Rail has huge potential<br />
for the chemical markets, and some<br />
chemical industry customers are using<br />
the railways for long-distance transport<br />
into the United States. We would like to<br />
see more railway development inside <strong>Mexico</strong><br />
to improve efficiency when it comes to<br />
time, flexibility and costs,” said Martin Sack,<br />
general director of Leschaco Mexicana.<br />
A national infrastructure plan unveiled in<br />
April <strong>2014</strong> has laid out a plan for $590 billion<br />
of public and private infrastructure investment<br />
between <strong>2014</strong> and 2018. The plan<br />
is an update to a 2013 predecessor that had<br />
outlined $340 billion, and is heavily focused<br />
on improving communications and transport<br />
for the energy sector. With 6 of every<br />
10 pesos to come from the government,<br />
the developments will depend on the<br />
ability of the public sector to tackle this ambitious<br />
plan.<br />
“We are optimistic that <strong>Mexico</strong> overall has a<br />
unique strategic geographic position. If our<br />
government puts these programs into place,<br />
we will have a very positive future in <strong>Mexico</strong>,”<br />
said Sack of Leschaco Mexicana.<br />
Upgrading capacity at <strong>Mexico</strong>’s airports<br />
and ports will also be necessary going<br />
forward, as importers and exporters encounter<br />
delays at these hubs. DVA Mexicana,<br />
the Mexican subsidiary of German distributor<br />
DVA, relies heavily on <strong>Mexico</strong>’s logistics<br />
infrastructure, as the company imports the<br />
majority of its products from China, India and<br />
Europe for use in <strong>Mexico</strong>’s pharma, food,<br />
industrial and specialty markets. While delays<br />
occur often at points of origin, because<br />
20 Global Business Reports // MEXICO CHEMICALS PRE-RELEASE<br />
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MEXICO CHEMICALS PRE-RELEASE<br />
of the heavy volumes of products being imported<br />
to <strong>Mexico</strong>, DVA Mexicana argues that<br />
port processes are sufficient to keep their<br />
business running on time. “In our experience,<br />
within <strong>Mexico</strong> the logistics framework is suitable<br />
for our needs, but the biggest problem<br />
we face is when vessels coming from abroad<br />
do not arrive on time. This happens a lot with<br />
vessels from China; given the demand they<br />
have, their freight needs are always changing.<br />
This makes it logistically quite challenging to<br />
coordinate efficient and timely client deliverables.<br />
However, once products reach the ports,<br />
we have no issues,” said Autrey of DVA<br />
Mexicana.<br />
Finding solutions to logistics bottlenecks<br />
To meet the challanges, the logistics industry<br />
has boomed in the last 15 years<br />
in <strong>Mexico</strong>. Leschaco, one of the first foreign<br />
players to arrive in <strong>Mexico</strong>, noted that<br />
the industry has multiplied thanks to small<br />
and medium-sized local companies entering<br />
the market. “When we arrived in 1998,<br />
there were about 80 companies in freight<br />
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November <strong>2014</strong><br />
Global Business Reports // MEXICO CHEMICALS PRE-RELEASE<br />
21
MEXICO CHEMICALS PRE-RELEASE<br />
Cargo Group International’s operations team moving a tank from Altamira to Navolato, Sinaloa. Photo courtesy of Cargo Group International.<br />
forwarding. Fifteen years later we have<br />
more than 300 companies and another 300<br />
to 400 indirectly linked to the market. More<br />
international players have come in, and small<br />
and medium-sized national companies have<br />
been established. Today <strong>Mexico</strong> has as<br />
completely a developed open market as in<br />
Asia and Europe,” said Sack of Leschaco.<br />
To help clients better optimize their supply<br />
chains, logistics companies are dedicating<br />
more specialized attention to specific client<br />
needs and taking advantage of technological<br />
innovations to improve service offerings.<br />
“Especially in <strong>Mexico</strong>, we are developing<br />
in-house and in-plant presence with our<br />
employees. We already have Leschaco<br />
employees present in seven companies in<br />
<strong>Mexico</strong> working directly with customers.<br />
Leschaco is taking more and more control<br />
of the supply chain and implementing key<br />
account management activities, so our customers<br />
can focus on their core businesses,”<br />
said Sack of Leschaco Mexicana.<br />
The need for specialized attention stems<br />
from challenging customs procedures that<br />
many manufacturers are not equipped to<br />
handle. “After Brazil, <strong>Mexico</strong> has the most<br />
<strong>Mexico</strong>’s Economic Outlook<br />
Ildefonso Guajardo Villareal, Secretary of the Economy<br />
of <strong>Mexico</strong>, comments on the country’s growth potential<br />
The bank of <strong>Mexico</strong> has cut its forecast<br />
for this year’s GDP growth from 3% to<br />
4% down to 2.3% to 3.3%. What are<br />
the reasons behind this anemic growth?<br />
The Mexican economy is highly integrated<br />
to the global economy. Our ratio of total<br />
trade to GDP is approximately 66%.<br />
This makes our economy highly susceptible to<br />
economic fluctuations outside of <strong>Mexico</strong>. Looking<br />
at the internal factors, 2013 saw the transition<br />
to the new government, and it was necessary to rethink<br />
how entire systems were managed.<br />
Today, the economies of our main trading partners are in<br />
much better shape and our own domestic policies are better<br />
structured. As such, we are expecting to see stronger growth in <strong>2014</strong><br />
than we saw last year.<br />
There is a split between <strong>Mexico</strong>’s large formal network of businesses<br />
and informal small and medium enterprises (SMEs). How<br />
does the government aim to address this?<br />
Twenty years ago we integrated our country into the global market<br />
and signed the North American Free Trade Agreement (NAFTA). Since<br />
that time, we have multiplied our exports by seven and FDI inflows<br />
have increased fourfold. At the same time, both inflation and interest<br />
rates have come down. However, none of this translated<br />
into strong growth for <strong>Mexico</strong> because the underlying<br />
mechanisms governing how business operates<br />
were in dire need of reform.<br />
The structural reforms aim to level the playing<br />
field for all businesses. One goal is to provide<br />
a regulated economy in which SMEs have access<br />
to more competitive financial resources<br />
and cheaper energy.<br />
Where will the Mexican economy be three<br />
years from now?<br />
The main target of President Peña is<br />
to reinstate the possibility of 5% to 6%<br />
growth by the end of his term. All of our economic<br />
policies are geared to stimulating growth.<br />
He has acknowledged that a dichotomy exists between unproductive<br />
SMEs and dynamic modern industry, and his policies aim to redress<br />
this situation. At the end of the day, we must increase productivity.<br />
This will be accomplished by incentivizing productive organizations to<br />
expand and by helping low productivity organizations become more<br />
sophisticated.<br />
22 Global Business Reports // MEXICO CHEMICALS PRE-RELEASE<br />
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MEXICO CHEMICALS PRE-RELEASE<br />
complicated customs requirements in the<br />
world, and we are able to place people inhouse<br />
with clients to ensure that their equipment<br />
is transported seamlessly into and<br />
around the country,” said Mauricio Boy, president<br />
and CEO of logistics provider Cargo<br />
Group International.<br />
Distributors looking to gain an edge in the<br />
market are also focusing on expanding their<br />
logistics capabilities. One of <strong>Mexico</strong>’s largest<br />
chemical distributors, Alveg, is the only<br />
distribution player in the market to invest<br />
in its own maritime terminal. “We always<br />
deliver products with our fleet of 200 units<br />
controlled by satellite tracking. A problem<br />
that we see in the short term for the country<br />
is storage capacity,” said Rodolfo Ramírez,<br />
general director of Alveg.<br />
With a clear vision from the government<br />
to expand transport capacity, the private<br />
sector will need to support these plans<br />
and follow suit with storage capacity<br />
expansion.<br />
Conclusion<br />
While challenges lie ahead for the industry in<br />
the form of tough regional competition and<br />
a transforming economy in the wake of the<br />
historic reforms, <strong>Mexico</strong>’s chemical industry<br />
has the potential to not only return to its<br />
levels of decades past, but also to become<br />
a leader in the chemical landscape of the<br />
Americas.<br />
Close collaboration between the government<br />
and the private sector will be crucial<br />
to the industry’s ability to leverage the new<br />
reforms into a growth opportunity. “The<br />
United States is experiencing a boom and<br />
business is beginning to return to North<br />
America, presenting an amazing opportunity<br />
for <strong>Mexico</strong>. You need to look beyond how<br />
the reforms affect the oil and gas industry<br />
and also consider how they impact the entire<br />
value chain,” said Tapia of Trichem. “In order<br />
for the government to fully achieve success<br />
it remains vital that it coordinate with the<br />
private sector to implement and draft longterm<br />
plans and also assure that objectives<br />
are defined.”<br />
Beginning with petrochemical expansion,<br />
cheaper and more available raw materials<br />
can trickle down stream. The startup of Braskem<br />
Idesa’s Etileno XXI project is a first step<br />
that could launch further investments up and<br />
down the chemical value chain.<br />
“Five years from now, Grupo Idesa plans to<br />
be in the expansion phase of our projects,”<br />
said Uriegas of Grupo Idesa. “The reforms<br />
are a powerful step in allowing greater access<br />
to feedstock, a necessity in increasing<br />
production in the future.”<br />
A focus on locally-made raw materials,<br />
coupled with a distribution sector made<br />
strong by competition and a growing base<br />
of international and domestic manufacturers<br />
focused on quality, the correct ingredients<br />
are in place for a robust sector going<br />
forward. With more active government<br />
support for research and development<br />
and training, <strong>Mexico</strong> can have what it takes<br />
to play a larger role in the global chemicals<br />
marketplace. •<br />
We would like to thank<br />
everyone who took the<br />
time to participate in the<br />
research we conducted<br />
while in <strong>Mexico</strong> City.<br />
Subsequent pre-releases<br />
will be issued in the<br />
coming months and<br />
the full report will be<br />
published in Chemical<br />
Week in March 2015.<br />
If you would like to<br />
be interviewed for the<br />
report as we continue<br />
to interview in <strong>Mexico</strong><br />
City and travel the<br />
country meeting with<br />
those relevant to the<br />
chemical sector, please<br />
contact Josie Perez<br />
(jperez@gbreports.com).<br />
<strong>Mexico</strong> <strong>Chemicals</strong> <strong>2014</strong><br />
Journalist: Amelia Salutz<br />
Project Director: Josie Perez<br />
Editor: Mungo Smith<br />
Graphic Design: Leigh Johnson<br />
www.gbreports.com<br />
November <strong>2014</strong><br />
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23